How to Avoid Cycle Based Budgeting

Review each contract to outline a project-based budget.

A cycle-based budget is standard in most of the business world. This type of budget works by estimating money coming into the company and allotting portions of that income to pay for expenses. The problem with cyclical budgeting is that new businesses and businesses that work on contract will not have a grasp on exactly what money will be coming into the company for the next year. You can avoid this problem by setting up your business on a project-based budget that works only with the cash on-hand and the current contract being fulfilled.

Instructions

1. Look at your finances at the beginning of a project. List your available cash that will be used throughout the project as a positive entry in the project budget. Never overextend your business by allocating more money than is available before the start of the new project.

2. Review the project specs as listed in the contract. List the estimated labor cost of the project along with every supply, tool and other expense as a separate entry in the negative column of your project budget. Double check your list to lessen your margin for error.

3. Subtract each negative entry on the project budget from your allocated cash. Meet with your client to make adjustments to the contract if the budget becomes more expensive than your cash on-hand.

4. Complete the project and collect your pay. Add this pay as a positive entry on your project budget.

5. Add the remaining original cash to the income from the project. This is the ending balance of your project budget. Keep this number ready for your next project budget.

Tips & Warnings

• An accurate budget will maximize profits. An inaccurate budget will push your company into bankruptcy.

References

• Solution Matrix; Budget/Budgeting; Marty J. Schmidt; 2011